National home values continued to increase in May, up 0.5% from April, to a Zillow Home Value Index of $159,000. Year-over-year, home values rose 5.4%, marking the second-highest annual rate of national appreciation registered in the past 12 months. 

For 19 consecutive months, home values have risen or remained flat. The last time home values rose to this level was July 2004. 

Of the 360 metros covered, 50.8% experienced home value appreciation between April and May.  Among the 30 largest metro areas covered by Zillow (Z), Sacramento saw the largest monthly increase, up 1.7% month-over-month. 

Las Vegas and Los Angeles also saw notable monthly increase, rising 1.3% and 1.0%, respectively. 

Of the nation’s 30 largest metro areas that Zillow covers, 29 saw year-over-year home value increases in May, with half up by double-digit percentages.

Major markets where home values increased the most over the past year include Las Vegas (28%), Sacramento, Calif. (26.1%), San Francisco (24.2%), San Jose, Calif. (21.8%) and Phoenix (21.3%). St. Louis was the only metro area in the top 30 where home values declined year-over-year, according to Zillow.

U.S. home values are expected to increase 4.1% from May 2013 to 2014 to an estimated $165,448, according to the Zillow Home Value Forecast.

It is anticipated that the pace of home value appreciation nationwide and in many local markets will moderate as more sellers enter the market and builders begin construction on more new homes, which will help lessen the supply crunch that has forced rapid home value appreciation.

“Enjoy it while it lasts, because the housing market will undoubtedly look very different a few years down the road from how it appears now. Inventory constraints are beginning to ease in many areas as more listings and new homes come on line, which will ultimately help end this period of rapid annual home value appreciation above 5%. Additionally, as interest rates begin to rise from their historic lows, some demand may also ebb from the market as home purchases become more expensive to finance,” said Zillow Chief Economist Stan Humphries. 

Humphries added, “While we believe the housing recovery will remain strong, home value appreciation will slow down, and buyers in it for the short term could get burned if they assume home values will continue rising as they have unabated.  A home should always be looked at as a longer-term purchase, which will help cushion homeowners against volatile short-term swings in value.” 

In April 2012, Zillow predicted that home prices would remain flat over the next 12 months, with home values reaching a bottom in late 2012 and falling approximately 0.4% from the first quarter of 2012 to the first period of 2013.

While Zillow’s forecast was slightly off, not many could predict the inventory restraint housing would face over the past months would endure unabatted. It is this restraint that pushes home values up, perhaps artificially, critics argue. 

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